Recent Ruling Could Change Pension Policy
A recent court ruling could be signaling a major shift in retirement and pension policy in California. The “California Rule,” the idea that pension benefits are completely protected and can never be changed or adjusted, may not be as strict as once thought. The rule stems from a series of court rulings and has significantly impacted many budget and policy discussions in recent years.
However, the First Appellate District recently ruled on a case from Marin County and essentially found that “while a public employee does have a ‘vested right’ to a pension, that right is only to a ‘reasonable’ pension – not an immutable entitlement to the most optimal formula of calculating the pension.”
The case stems from a challenge to the rule brought forward in Marin County. Marin is a 1937 Act county, meaning county employees participate in the Marin County Employees’ Retirement Association (MCERA) and not through a contract with CalPERS. Several years ago, the Legislature passed the California Public Employees’ Pension Reform Act of 2013 (PEPRA), which made significant changes to the methodology for calculating public pensions. Marin County implemented PEPRA, including changes to what types of pay would be factored into setting pension amounts. For example, MCERA would “begin excluding standby pay, administrative response pay, callback pay, cash payments for waiting health insurance, and other pay items” when utilizing employee compensation to calculate pensions. Five employee organizations and four individuals filed suits against (MCERA) over the reforms.
Citing many different cases and precedents, the court found that the government has the right to make reasonable changes to pensions; additionally, employees do not have a right to any specific or fixed pension but rather a “substantial or reasonable pension.” Specifically, the ruling states that “short of actual abolition, a radical reduction of benefits, or a fiscally unjustifiable increase in employee contributions,” the government may “make reasonable modifications and changes before the pension becomes payable.”
The potential impact of this ruling is huge for pension reform policy – but time will tell how it will play out or how other counties may be affected. Similar cases have been brought in other jurisdictions, and an appeal of the First Appellate Court decision could result in a showdown at the Supreme Court. CSAC will keep counties apprised of future developments.